ONE OF THE important matters that the 97th Congress did not get around to during the lame-duck session is the power of the bankruptcy courts. Their status has been put in doubt by a Supreme Court decision. And, as the new year begins, there is still uncertainty, if not yet the chaos that had been forecast.
Bankruptcy matters traditionally had been handled by special court officials. These so-called "referees" had limited powers. They had to refer certain questions peripheral to bankruptcy to federal district courts. To modernize this rather cumbersome system, Congress in 1978 made the referees bankruptcy judges and gave them the power to settle the full range of questions these cases entail. The Supreme Court declared this new law unconstitutional because it gave the new judges more powers without giving them certain protections enjoyed by other federal judges. The effective date of the Supreme Court's order was postponed to let Congress change the statute. It could do this by cutting back on the newly granted powers of the bankruptcy judges or by granting them the same status and protections as other federal judges.
What then happened is not wholly Congress' fault. For as soon as a bill was introduced, creditors' lobbies asked for amendments that would make bankruptcy more difficult for individuals. Others suggested that bankruptcy judges be given all the powers of other federal judges and authorized to preside over a whole range of cases from crimes to antitrust. Those with political interests reminded the legislators that elevating the bankruptcy judges would give the present incumbent of the White House a chance to nominate hundreds of new judges. And the federal judiciary itself, led by Chief Justice Burger, generally opposed the new status for officials who had not quite been the equal of other federal judges in the past. The whole issue became complicated to the point where there was neither the time nor the will to act before Congress adjourned.
Fortunately the Judicial Conference, the policy- making arm of the federal judiciary, anticipated this impasse and made plans to cope with it in the absence of a clarifying law. The Supreme Court's decision invalidating the 1978 law went into effect on Christmas Eve. But by then every district court in the country had adopted new rules providing, in effect, that the pre-1978 procedures be reinstated. Bankruptcy petitions are filed in bankruptcy courts, and many matters are still handled there. But if there is any doubt as to their power to decide peripheral questions, the bankruptcy judges refer them to the district court as they used to do five years ago. This makeshift arrangement has worked for a week, and so far no suit has been filed challenging the procedure. But it won't last. There are not enough federal district court judges to take on the cooperative bankruptcy responsibility, especially since these cases are growing in number-- 750,000 are now pending--as economic conditions deteriorate.
The stability of the bankruptcy system may not be a class-A issue for the new Congress, but it is of great interest to hundreds of thousands of Americans, to corporations and creditors, to individuals and small businessmen. Congress ought to put the bankruptcy courts on a firm, permanent and constitutional foundation.